Why Australian banks are getting paid in the US dollar

Posted by Financial Review Editor-in-Chief Richard Wollon on Monday, August 23, 2018 16:38:17Australian banks are using the US Dollar as a reserve currency to hedge their bets on foreign exchange markets.

The move is a result of US President Donald Trump’s threat to impose a trade war if Australia does not sign trade deals with the US.

While the Federal Government is yet to respond to Mr Trump’s threats, its Treasurer, Scott Morrison, said that the US would not sign free trade deals.

The Australian dollar has appreciated by nearly 50 per cent against the Australian dollar in the last week, after a sharp rise last month that was seen as a signal to the Australian Government.

The US dollar has increased by almost 50 per,cent against the US pound in the same period.

The Federal Government has not made a public statement on the matter.

In a statement released in February, the Australian Reserve Bank (ARB) warned that if the US did not agree to trade agreements with the world’s largest economy it could impose a significant financial and economic impact on the economy.

It also warned that this could be worse than the economic impact of the trade war.

“The US is unlikely to sign any free trade agreements in the next five years, so any currency devaluation in the region will have a significant impact on Australia’s economy and our economy,” the statement said.

“If the US does not agree on trade deals, there is a high likelihood that the global financial system could be hit hard by any devaluation of the US currency.”

The dollar is the world reserve currency and has been the main exchange rate benchmark since 2001.

It has also been used as a currency swap tool since 2003.

In 2016, US President Barack Obama signed a $1.4 trillion trade deal with Australia.

The deal also included free trade in services, with Australia agreeing to join the Trans-Pacific Partnership (TPP).

While the deal is not yet ratified by Congress, it is expected to be signed in coming weeks.

The trade agreement will see Australian exporters to the US pay US producers in the dollar to avoid the tax on imports.